With its recent acquisitions of Quaker Oats (i.e., Gatorade), South Beach Beverage Company (SoBe), and the global expansion and success of its Frito-Lay snack business, Pepsi may indeed be "The Real Thing."
Although Pepsi is not the "Cola King" (that honor still belongs to Coke), Pepsi has become more adept than its Atlanta-based rival at winning in the larger beverage market.
The bottled water segment is a good case-in-point. Introduced by Pepsi in 1995, Aquafina is now the No. 1 branded product in the bottled water market. (Private label still leads the category.) In contrast, Coca-Cola has come to the H20 party late--launching its Dasani brand nationally last year. To its credit, though, Coke propelled Dasani from near zero to more than $80 million in sales. As the No. 5 branded water product, however, Dasani has a major upstream battle ahead to overtake Aquafina.
Another area where Pepsi appears to be outmaneuvering Coke is in the New Age drink segment. Last October, Pepsi shelled out $370 million for a 90% stake in SoBe, makers of alternate drinks laced with ginseng, guarana, taurine and other "hip" additives that appeal to the key "under-25" demographic.
SoBe, which had more than $200 million in sales in 2000, also gives Pepsi an inroad into the tiny but growing energy drinks market. Last year, SoBe rolled out Adrenaline Rush, an energy drink packaged in 8.3-oz. bottles.
Following the success of Red Bull and others in the energy drinks category, several companies are quickly trying to tap into this niche beverage segment. Last fall, beer king Anheuser-Busch unveiled 180, an orange citrus energy drink. Coke also is planning to enter the category with a product called KMX.
Although carbonated soft drinks possess huge volumes and sales, it's the noncarbonated alternative drinks that have the most growth potential. And that's exactly where Pepsi has a leg up on Coke. In addition to being No. 1 in bottled water, Pepsi is the leader in ready-to-drink tea under the Lipton brand and ready-to-drink coffee with Frappuccino--its joint venture with Starbucks.
In the RTD coffee arena, Coke may be ready to challenge Frappuccino. Last month, Coke acquired the Planet Java brand of coffee drinks. Currently distributed in New York and New Jersey, the drinks will be expanded to other states this year. "The addition of Planet Java is part of an aggressive effort to expand our line of beverages to ensure that if consumers and customers want a particular type of product, we've got to have it," declared Jeffrey Dunn, president of Coca-Cola North America.
That aggressive effort may also include a new line of dairy-based drinks. In December, The Wall Street Journal reported that Coke was planning to test market five flavored milk products in early 2001.
When it came to the purchase of Quaker Oats late last year, Pepsi was clearly the aggressor and landed the Gatorade jewel for a whopping $13.8 billion. Some folks think that Pepsi paid too much, and that Coke was wise not to get into a bidding war. However, Pepsi now owns the sports drink powerhouse, which has about $2 billion in annual global sales and holds a commanding 80+ market share.
Pepsi also grabs Quakers' $300 million snack business, which should benefit from Frito-Lay's direct-store-delivery and expanded distribution.
The "Cola Wars"of the 1980s have moved to new battlegrounds. For the noncarbonated segment, it means more innovation as the two arch rivals try to serve every thirst occasion imaginable.